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MONEY BOX
Presenter: PAUL LEWIS
TRANSMISSION 20 MAY 2006 1200-1230 BBC RADIO 4
LEWIS: Hello. In today’s programme markets tumble in
their worst week for years. A routine blip or something more serious?
Banks and building societies are accused of sharp practice; the plastic
card that lets you spend but not overspend; return of the carpetbaggers
as a building society says new customers can get windfalls if it’s bought
or taken over; the £5 lottery ticket that can cost £8. And some Standard
Life members will get more than £100,000 if enough vote for change.
But first, share prices have tumbled in London and New York in the
worst week for stock markets for several years. Here was the news on
Wednesday.
HEADLINES: In the city, the 100 share index closed down 171
points at 5675. That was its biggest drop for almost 4 years. Every
single stock in the 100 share index … (fades)
LEWIS: Falling share prices means of course that our
pensions and investments are worth less now than they were in April.
Overall the price of shares in the UK is down 8 to 10% in a month.
We’ll come back to the UK in a moment, but live first to New York to
talk to Barry Hyman, market strategist at investment boutique EKN
Financial. Hi Barry, you’re just waking up Saturday morning there.
How did the US markets close for you Friday?
HYMAN: It was a mixed day. We did try to rebound off
of the very poor performance we had earlier in the week and the week
before that where the decline of the market totalled almost 5½% to 6%
from top to bottom. And we’re going to try to make an attempt, we
think, over the next week or so to do some rebound, but the more
important picture to us is the reason why the market went down, which
was inflationary pressures.
LEWIS: Inflationary pressures? Fears that inflation in
the US is rising?
HYMAN: Yes it is. And we saw the CPR report, which
was the report that stoked the fears. It was up 0.6%, much higher than
expected, and even on the core it was higher – that “exes” out food and
energy. This tells us that the Federal Reserve Board that meets every
month or so to raise interest rates possibly, we think they have further
to go which would eventually slow the economy down.
LEWIS: Right, so prices rising. The CPR – that’s some
price report, I think, isn’t it? So the prices are rising and interest rates
will follow and that depresses share prices. Is that your analysis?
HYMAN: That is the analysis. Usually if interest rates are
going higher, then stock prices usually don’t do very well.
LEWIS: Sure. I’ve been reading a lot though about
speculation, about all these complex products traders are now using,
which effectively are just bets on the future level of the market – hedge
funds, derivatives and something called variance swaps, which was a
new one to me. To what extent is this fall caused by speculators as
much as the real economic conditions that underlie the economy in
America?
HYMAN: Well we think it’s the underlying economic
condition, which is inflation becoming a bit more of a problem. But
whenever you have derivative products, which is what you’re speaking
about, which carries a lot of leverage, which means you borrow money
to make money, there is the risk that when a market turns, there’s
people caught on the wrong side. And indeed that always stokes the
fuel – the fire rather – and I think that that could be the case this time.
It’s accelerated the decline.
LEWIS: Yes, so it increases the volatility, the up and
down, and at the moment down. Future prospects though. As you say,
inflation rising, interest rates possibly rising. And the US deficit of
course – the amount the government spends over what it actually brings
in – is absolutely vast, isn’t it?
HYMAN: It is and it’s a tough task, and we’re surprised
that the market has actually done this well. We came into the year a bit
cautious and we remained that way and it is an inflationary story, it is a
deficit story. But we’ve seen news in the last week or so about trade
partners – Ecuador, Venezuela, Bolivia, Russia – all causing concerns
to our potential local companies here that might be a problem, so we
think it’s a bigger problem. We do not see much of a big rally for the
rest of the year. Maybe over the summer time a normal summer rally,
but after that we think the market’s going to have trouble again.
LEWIS: And more uncertainty ahead then. Barry
Hyman in New York, thanks very much for talking to us that early in
your morning. What about investors here though? Brian Dennehy of
independent financial advisers Dennehy Weller is listening to that.
Brian, two weeks of pretty steady falls here. Are we just following
America down?
DENNEHY: No, I think it’s more a global problem anyway.
It’s not really a US centric problem. This all began with Japan putting
interest rates up a month or so ago, China symbolically putting rates up
about a month ago, coupled with the new Chairman of the Federal
Reserve suggesting that rates had gone far enough and no one believed
him. So actually the seeds of what’s happening now have been laid for
some time.
LEWIS: And you’ve been predicting some kind of
correction or adjustment, haven’t you?
DENNEHY: Absolutely, over the last couple of months I
mean we’ve been very clear on what we expected to happen both in the
UK, which wasn’t something we were worrying about although we
were expecting, but we were probably more worried about the risks in
commodities and emerging markets.
LEWIS: Yes, I mean certainly commodities, the price of
copper and metal, we can’t have missed the news on that. They’ve
been rocketing up and then coming down rather sharply. But the UK
economy itself is supposed to be fairly healthy, isn’t it, and the earnings
on shares, the return you get for buying shares is high. Now that
implies to me share prices are too low and not due for further falls.
DENNEHY: Yeah, the most interesting thing about the last 3
years, perhaps until the last 2 weeks, is that there’d almost been a bull
market by stealth because actually earnings have been rising faster than
the stock market. So what that means is that the stock market on one
criteria, one measure, is actually cheaper now than it was at the stock
market bottom in March 2003.
LEWIS: And what should that tell us though? I mean
should we really care? Is this going to affect our pensions and our
savings?
DENNEHY: As a long-term feature, this is actually largely
irrelevant to what’s happened in the last couple of weeks. The falls
we’ve seen so far are a little more than a ripple on the stock market
pond and in fact we should expect something a little worse than this
much more regularly. The last 3 years have been unusually calm.
LEWIS: And what should investors do? What have your
investors been asking you about?
DENNEHY: In the last week, I think we’ve had a few calls.
We did say to people look do expect this, so they weren’t surprised, and
one or two people rang and had some comfort from what we had to say.
One or two clients undoubtedly did take profits because they saw that
or they were aware that they needed to buy a house or retire in the next
6, 12 months, so took the opportunity to take their money out of the
market. But on the whole there was no panicking at all.
LEWIS: Brian Dennehy from Dennehy Weller, thanks
very much for talking to us.
Now when banks and building societies change interest rates, they’re
meant to do a number of things to tell their customers about it. The
Banking Code, to which almost all belong, gives assurances that they’ll
…
STATEMENT: Keep you informed about changes to the interest
rates on your accounts and we will tell you about the ways we will do
this.
LEWIS: The Code also says ...
STATEMENT: The requirement to keep you informed of
changes to interest rates on your accounts will be fulfilled by either
telling customers personally within 30 days of the change or within 3
working days of the change, putting notices in branches and
newspapers.
LEWIS: And the Code also allows your bank to tell you
personally about the change (usually by letter) but up to 30 days after
the change happens, delaying the opportunity to switch to a better
account by a month. Money Box listener John had an e-saver account
with Nationwide. Earlier this year Nationwide cuts its interest rate
from 4.75% to 4.55% with just one day’s notice.
JOHN: If I’d known that the rate change was coming
up, I’d have planned for it and I would have transferred my money to a
better paying account. As it was, I discovered several weeks after the
event that I’d actually lost out on the potential income I could have
received in terms of interest. I think the regulations should be tightened
up. We’re living in the Internet age now. The information could be
transferred so much more swiftly.
LEWIS: Well Nationwide isn’t the only one. Halifax’s
Direct ISA was advertised at a headline grabbing 5% just before the end
of the financial year, but it swiftly dropped that rate from 6th April to
4¾% as Money Box listener Pat found out.
PAT: I went online to see what interest had been
credited to the account and I just happened to notice that the interest
rate had dropped and I hadn’t had notification of it. But I was horrified
because I didn’t know when it had changed and I wrote to the Halifax.
They did say that the Banking Code required them to notify people
within 30 days, but they go right to the wire and do it 30 days after the
event rather than before the event.
LEWIS: Well Nationwide and Halifax both insisted to
Money Box they didn’t break the Banking Code, so is it time the Code
was tightened up? Adrian Coles is Director General of the Building
Societies Association and a member of the Banking Code Standards
Board. I put it to him that customers could miss out on better interest
rates for a month.
COLES: Well they’re not losing an entire month’s
interest of course. I mean interest rates don’t change hugely these days.
What they may possibly have lost is a ¼% or a ½% possibly for a
month, but it is consistent with what the Banking Code requires. And
you’ve got to give institutions some time to prepare the letters, to get
them out, to get them distributed to customers.
LEWIS: But if they can put an advert in the newspaper
beforehand and a notice up in the branch beforehand, surely they can
write to their customers sooner than a month?
COLES: Many institutions do do it quicker than 30 days.
The Banking Code is a minimum set of standards that everybody has to
adhere to. If customers feel it’s very important to get that information
quicker than 30 days, then that’s something they should ask the
institution about when they open their account.
LEWIS: Do you think the Banking Code should be
tightened up in this respect? Do you think there should be a shorter
limit than 30 days?
COLES: Don’t forget someone like Nationwide Building
Society has got 11 million members. If bank base rates change by a
significant amount, say ½%, to organise the distribution of letters and
notifications to 11 million people is not a simple and straightforward
task. So I think to say that you’ve got to do it within a week, I think
we’d probably so overwhelm the Post Office that no other post would
get delivered.
LEWIS: You don’t think that nowadays with a lot of
these customers being online customers, they could just be e-mailed?
That would be very quick and very efficient.
COLES: Yes, there is the option to do that and a number
of institutions do e-mail, but of course not everybody opens their e-
mails that come from commercial organisations.
LEWIS: No, but it would be an alternative, wouldn’t it?
Where customers are online, they’re not going into the branch, they
may not read the right newspaper - just send them an e-mail, fulfil your
obligations, and you could do that overnight.
COLES: Yes, the Banking Code does say that the
personal notifications can include e-mail, but again there is still the 30
day requirement to do that.
LEWIS: And how do you respond to our listeners who
say this is almost like sharp practice – you change the rate and then at
the very, very last moment, you tell us about it?
COLES: I think 30 days is an appropriate period of time.
LEWIS: And you’re a member of the Banking Code
Standard Board representing building societies. Is this something
you’ll be raising when the review comes around next year?
COLES: Anyone can respond to the consultation on what
should be in the Banking Code.
LEWIS: I was really asking if next year you will raise
this on behalf of building societies rather than wait for someone else to
raise it.
COLES: We will certainly look at it and see if there’s
scope for improving the speed of notification to customers, yes.
LEWIS: Building Societies Association boss Adrian
Coles. And you can have your say on the way banks and building
societies tell us about interest rate changes on our website,
bbc.co.uk/moneybox.
A new payment card is aiming to help 8 million people who can’t get a
bank account or credit card. It lets them buy over the phone or internet
where prices are often cheaper. And the company says charities will
benefit too, but by how much? Chris A’Court reports.
A’COURT: I’m in the Atlee Room at the House of Lords for
what’s clearly a high profile launch of this new pre-pay card. Called
360money, this card is the brainchild of a firm called Prepay
Technologies, and its Chief Executive, Philippe Dufour, claims
virtually anyone can have it.
DUFOUR: There is no credit attached to this card, so
because there is no credit we are not requiring a lot of information. We
are requiring a name, a valid address that we can validate with our
database and our service providers. Our company is regulated by the
Financial Services Authority and you don’t work with the Post Office,
Paypoint and Mastercard without being a trusted organisation.
A’COURT: It works like this. You apply online or over the
phone for the card and it’s sent out to you. Then you take it into a Post
Office or convenience shop, hand it over with some cash, and that cash
is credited to your card ready for you to start spending on the internet,
phone or in shops. You’re spending is strictly limited to the amount
you put on the card, like a mobile phone top-up, so it’s impossible for
you to overspend with it, and the firm behind this card also thinks it’ll
be attractive to anyone shopping over the internet. That spending limit
makes it impossible for fraudsters to get away with huge amounts, like
they’ve sometimes done, using stolen credit card details. The Post
Office’s Linda Cook feels it’s a welcome development that will really
help some disadvantaged people to run their finances better.
COOK: We’ve been working with them now for around
3 months to really understand the proposition and to make absolutely
sure it was right to offer the top-up service in our network.
A’COURT: And will there be any charge for that?
COOK: No, there’ll be no charge at the Post Office to
customers.
A’COURT: But anyone taking out this card needs to watch
carefully for other costs. Firstly there’s a £1.99 monthly management
fee. Then buying anything with the card over the phone or internet
incurs a 2½% fee each time – so spend £50, for example, and it’ll cost
you £1.25. So how does 360money’s Philippe Dufour defend such
charges on a card that’s primarily designed to help disadvantaged
people who are usually on low incomes?
DUFOUR: Obviously we have costs and we have to
recover those costs. We can’t recover the money somewhere else like
banks might do it. We feel that the percentage fee was very appropriate
because if a customer wants to buy a music download for £1, 2.5% is
very tiny; but if he wants to buy let’s say a television for £500, it might
be perceived as expensive, but actually maybe there is a cost advantage
of doing so.
A’COURT: Since internet goods prices are generally
cheaper, that 2.5% fee may be fully offset if you do the sums carefully,
but the company behind this new card is also placing great emphasis on
how charity will benefit and there the sums are less clear. Already
charities including Mencap and the Samaritans are set to benefit, but at
the moment there’s still some uncertainty about how much each will
get.
Anthony Langhan, you’re from the Samaritans, one of the charities that
360money has linked up with. I’ve looked at the literature they’ve
released today. I’m not sure how the charities will benefit exactly from
this and how much you’ll get back.
LANGHAN: I think we’re still working with 360money to
actually see how things are going to work. We now have affinity cards
out there that are benefiting charities and we have some relationships
with organisations doing that. And I think like all fundraising products,
we have to look at getting involved in these things and seeing where it
takes us. Obviously if it doesn’t work out, we know that we can
withdraw from these relationships.
A’COURT: Philippe Dufour, are you guilty of exploiting the
charities in order to get this card off the ground?
DUFOUR: I can’t avoid that people look at it this way, but
I don’t think it’s a reality. We have different commercial agreements
between the charities; they are not the same. Charities in a nutshell are
getting a fee for every card being distributed and activated and used,
and when the card is being used for transactions they get also an
additional fee that we are giving them.
A’COURT: You say you prefer to keep it confidential at this
stage.
DUFOUR: For the time being, yes.
A’COURT: Even the charities who I’ve talked to today
don’t seem to know exactly what they’re going to get back – whether
they’re going to get 1% from each transaction, for example.
DUFOUR: They certainly won’t get a percentage. What
we have established with the charities at this stage is they’ll receive a
fixed fee per transaction. This is a new industry. What our aim is is to
raise £2 million and we will find a way to achieve this objective, which
I believe is ambitious but achievable.
LEWIS: Chris A’Court reporting. And there are other
pre-paid cards available. Links to them on our website.
Britain’s 19th biggest building society opened the door to carpetbaggers
this week. On Thursday Kent Reliance announced it was scrapping the
rule which prevents new members benefiting from windfall payments if
the society’s taken over by a bank or is floated on the stock market. All
new members since June 2000 have had to agree to a clause promising
to hand over any windfall to charity, but new members joining from
June 1st this year will not be subject to that condition. With me is Mike
Lazenby who’s Chief Executive of Kent Reliance. Mike, isn’t this an
invitation to carpetbaggers to join the society and force you to sell it
off?
LAZENBY: Well building societies are there for everybody
anyway and I think that the reason that the windfall assignment scheme
was introduced 5 years ago was to stop the disruptive impact of having
speculative investors which we would call carpetbaggers. Kent
Reliance, probably the most successful building society in the country,
wouldn’t be disrupted now by the impact of carpetbaggers and as a
consequence we just want to be open to everybody.
LEWIS: So you’re welcoming them, you’re trying to
fatten yourself up with lots of new customers? The bigger you are, the
juicier you might appear to a predator?
LAZENBY: Well inevitably it’s a very competitive market
that we’re in. Costs are going up, margins are going down. It’s very
difficult to make money when you’re offering investment accounts of
5% and mortgages of 4%. So it’s almost a certainty that many building
societies will have to merge or join up. I think that if we ever get to the
point where we have to have a merger with somebody, I don’t
necessarily want that to be with another building society possibly run
by backward thinking, inward looking management.
LEWIS: You’re not very kind about your colleagues, are
you? But you seem to be inviting somebody who isn’t such a manager,
maybe in the private sector – a bank or an institution like that – to come
and make an offer.
LAZENBY: We have a duty to our members to do the best
thing for them and the best thing for them may not be merging with
another society; and if in the event that we were to do a merger, we
would want to have our options open. And that’s not going to happen
tomorrow or next week or next year, but at some stage in the future we
may have to do a merger and if we did that it wouldn’t necessarily want
to be with another building society.
LEWIS: And is this a way perhaps though to encourage
people to open one of your not very good savings accounts? I mean
Easy Access pays 1% on small amounts, only 2.8% on bigger amounts.
LAZENBY: But we also have some very good best buys.
Our ISA’s a best buy, our bond’s a best buy. We also have some best
buy mortgages.
LEWIS: They’re in the tables. They’re not the best, I
think. They’re in the Top 10 some of them, yes. And finally, do you
think you’ll still be a building society in 5 years time?
LAZENBY: I think we might be one of five that’s still
around in a few years’ time.
LEWIS: Mike Lazenby of Kent Reliance, thanks.
A new National Lottery which gives some of the ticket price to charity
has turned out to be more expensive than some customers expected.
Play Monday has been marketing itself as the alternative to the National
Lottery with quirky adverts like this.
ADVERTISEMENT FOR PLAY MONDAY
LEWIS: It claims to give more of the ticket price to
charities than the National Lottery, though the net amount that goes to
good causes is roughly the same. But the charity connection attracted
Money Box listener Hugh, who decided to have a flutter and he bought
his first ticket online with his credit card.
HUGH: I charged my lottery account up with £5. I was
horrified when I found out from my credit card statement that I had
been charged an extra £3 on top of it as a cash advance fee. When I
phoned up the credit card company, they admitted that this was a charge
that they had imposed and that it was apparently stated in my terms and
conditions, but there was nothing stated on the Play Monday website
that any such fee was likely to be incurred.
LEWIS: Hugh had been caught by a new policy of some
credit card providers to treat a bet made online not as spending but as a
cash advance. The new policy began in February, partly as a reaction to
the high level of online gambling. But the practice is not universal as
we’ve been finding out. Jessica Laugharne’s been looking into these
charges.
LAUGHARNE: Well we did a ring around of the major credit
card providers and we found a very confusing picture. Hugh’s card
provider MBNA charges the most. That’s 3% or £3, whichever is
higher. Egg charges 2% with the minimum of £2.50. Royal Bank of
Scotland doesn’t levy a charge, but does treat it as cash so interest starts
at once and at a higher rate. Barclaycard told us it doesn’t treat online
gambling as cash and levies no extra charges and finally American
Express and Citibank both said they don’t allow their cards to be used
for online gambling at all.
LEWIS: Well certainly confusing. And what’s Play
Monday said?
LAUGHARNE: Well it says it’s aware that some credit card
providers are charging this fee, but its website, which does encourage
people to buy tickets online, carried no warning of this. Following our
calls this week, the company now mentions it in the frequently asked
questions on its website.
LEWIS: Thanks, Jessica.
It’s emerged this week that some Standard Life customers will get
windfalls of more than £100,000 if its members vote later this month to
turn it into a stock market company. The figures emerge as the insurer
tried to rally its 2.4 million members into voting for the change. John
Hylands is the Standard Life director in charge of the move. I asked
him why some members stood to gain so much.
HYLANDS: The number of shares that people get and
therefore the value of the shares depends on the size of their with profits
investment – how much they have invested in with profits – and how
long they’ve had the investment for. Now some of our policies have
been in force for a very long time – 40 years or more. Someone who’s
got a very substantial policy and they’ve had it for a very long time will
be in line for a substantial number of shares.
LEWIS: Did you think of putting a cap on it because it’s
going to seem very unfair to people who get £500 or £1,000 if
somebody’s got half a million pounds coming to them?
HYLANDS: The compensation scheme has been worked out
very carefully to reflect the rights that members are giving up.
Members are giving up a right to vote, members are giving up a right to
share in any surplus in the company were the company to be wound up.
Technically that is what they are giving up by voting to demutualise. It
does not therefore seem appropriate to put a cap in place and these
proposals that we are putting to members have been reviewed by an
independent expert who has confirmed that in his opinion they are fair.
LEWIS: Standard Life’s John Hylands. And if you’re a
Standard Life member you can validate your membership by returning
the form you were sent at the start of the process or indeed by voting. If
you don’t do one of those then you’ll have to apply for your windfall
later, but you have 10 years to do that although you may lose out on
extra share options. And remember if you want to vote, you have to
post your ballot paper back this week - it has to arrive by Sunday – or
attend the meeting in person on May 31st in Edinburgh. Links to the
Standard Life help line on our website and with the BBC Action Line.
And Jessica, some bad news this week for premium bond holders.
LAUGHARNE: That’s right. More than a million pounds is to
be taken off the premium bond prize fund to help pay for the rising
costs in running the scheme. The interest rate used to calculate the
prize fund pot is dropping from 3% to 2.95%. Although the fund’s
shrinking, the odds of winning any prize do remain the same at 24,000
to 1. National Savings and Investments also announced this week that
it’s making some small increases on the returns paid on some of its
other products as long-term interest rates creep up.
LEWIS: Thanks for that, Jessica. Well that’s just about
it for today. There is more, including those Standard Life helpline
details if you are a member and you’re not quite sure whether your vote
has been received or indeed you’ve validated your membership. Those
details are with the BBC Action Line, which is 0800 044 044, and of
course on our website, bbc.co.uk/moneybox, where you can listen to
any item on the programme again and have your say on banks and
interest rates. There are personal finance stories on Working Lunch,
BBC2 weekday lunchtimes. Some of those e-mails are coming in
already, so tell us your views about banks and interest rates. Don’t
forget our phone-in Money Box Live on Monday afternoon. This week
Vincent Duggleby’s here to take your calls on trusts and wills. I’m off
next weekend, but Chris A’Court will be here with Money Box at the
same time. Today’s producer was Sonia Rothwell and I’m Paul Lewis.